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📰 It’s time for SDG investing to get more sophisticated (and investors, to move away from the rainbow-washing). Citing Util’s 2022 report on SDG leaders and laggards, ESG Clarity reports on growing demand for tools and strategies that factor in more geographies, new funding, and negative impact.

From the top

🌲 Financial institutions are ‘woefully behind’ on deforestation risk, according to Global Canopy. In its 9th annual Forest 500 Report, the non-profit reveals that 40% of the companies and financial institutions with the most exposure to and influence on tropical deforestation have yet to set a single policy. Half of those assessed have public commitments to meet net zero by 2050, of which 98% will fall short due to insufficient action on deforestation. The UN set a deadline of 2025 to eliminate commodity-driven deforestation and associated human rights abuses from their supply chains, yet companies spent $6.1T on forest-risk supply chains in 2023 alone. Reinforcing the point in its latest Point of No Returns report, ShareAction claims asset managers — even those leading on responsible investing — have a biodiversity blind spot.

🦄 If the threat of “total ecosystem collapse” doesn’t move the investment dial, perhaps explosive asset-owner interest will prove more compelling. Having tripled their assets in 2022, biodiversity funds are approaching the $1T mark. On the other side of the equation, regulation is catching up. Having recently agreed to block commodity imports linked to deforestation risks, the EU is preparing to implement its Regulation on Deforestation-free Supply Chains. Not everyone is happy, of course. Disgruntled trading partners are calling it “green protectionism,” while critics deem it unfair to smaller businesses. Similar international disagreements have hindered UN negotiators seeking to ratify a treaty on maritime biodiversity. Amid geopolitical fragmentation, achieving global conservation won’t be plane sailing.

Story of the week: Sustainable or stalling?

Once upon a time, Boeing and Airbus weren’t obvious contenders for the ‘sustainable’ label. Defence stocks were the first to be screened out of responsible portfolios. Highly polluting aircraft could hardly claim to be green.

Times have changed. One year after Russia invaded Ukraine, weapons are more commonly found in portfolios designed to “do no significant harm.” (Our CEO, Patrick Wood Uribe, has repeatedly underscored the problems with this approach, including in the Financial Times and WealthBriefing.) Now, moreover, it appears that the bulk of European aircraft may be included in the EU green taxonomy.

In its 2022 draft criteria, the European Commission suggested that aircraft — even those powered by jet fuel — would qualify as ‘best in class’ were they more efficient than older models. Campaigners are urging the EU to rethink their plans. New analysis by environmental campaign organisation Transport & Environment (T&E) show that over 90% of Airbus’ future orders meet that benchmark, despite their heavy reliance on fossil fuels. Airlines that replace rather than expand their fleet could also be classified as a green investment under the EU rules for sustainable finance.

“Sticking a green investment label on thousands of highly polluting planes is an act of pure greenwashing. The European Commission must reverse course. Unsurprisingly, Airbus is lobbying relentlessly to ensure aviation stays in the taxonomy. But this would be a mere smokescreen that allows them to sell dirty planes for years to come. Instead, they should focus efforts and investments in zero-emission aircraft that are truly green.” Jo Dardenne, aviation director at T&E

Lots of hot air

Aviation has an emissions problem. Its outsized polluting impact drags on several social and environmental targets, including SDGs 1 (No Poverty), 3 (Good Health & Wellbeing), 11 (Sustainable Cities & Communities), 12 (Responsible Consumption & Production), 13 (Climate Action), 14 (Life Below Water), and 15 (Life On Land).

Due to some unique properties of consumption and production, the aviation emissions problem isn’t easily solved. Transport has an unusual (relative to other sectors) dependency on fossil fuels. Modern aircraft are an unusual (relative to other modes of transport) type of polluter.

Take the first. In their drive towards decarbonisation, most industries have been busy chipping away at their overall energy mix. For swathes of the transport sector, however, it’s not so easy. You can’t power a ship or plane with renewable energy as you can electricity (which, by contrast, has been adopting clean-energy sources at a record rate). Per IEA data amalgamated by Util models, transport relies on oil for 91% of final energy. Unable to wean itself off fossil fuels, the sector represents a growing share of the global carbon budget: 37% of end-use carbon and 17% of total greenhouse gas emissions, respectively.

Which takes us to the second problem. It’s not only through carbon emissions that aviation perpetuates climate change. Non-carbon emissions contribute twice as much to global warming. Chemtrail conspiracy theories might be baseless, but the powerful warming effects of vapour trails and cloud formation are very real.

Per, again, the scientific consensus extracted by our models, aircraft emissions have a “host of other short-lived, non-CO2 effects that are complex, involve impacts that are both warming and cooling, and are unique to this sector,” such as “an increase in tropospheric ozone (warming) and the long-term destruction of… ambient methane (cooling).” The overall effect is warming, calculated by the difference between “positive and negative radiative forcing” (or: the energy that's absorbed by and radiated away from the atmosphere, respectively).

Though it accounts for 2.5% of global carbon emissions (enough to qualify for the sixth highest-emitting country — right between Japan and Germany — were it one), the aviation industry contributes to 3.5% of positive radiative forcing and global warming. Critically, those non-carbon aviation forcings are left out of the Paris Agreement.

Rubber hits the road

The transition plans of most airlines are underpinned by greater adoption of sustainable aviation fuel (SAF). Produced from more sustainable sources than fossil fuels, such as agricultural waste and used cooking oil, it claims to reduce carbon emissions by up to 70%.

From the $100M investment vehicle organised by major US airlines, to a $65M deal struck by the US Department of Defence, to the first commitment by a $200M fund established by Airbus and Qantas, to Heathrow’s incentive scheme, SAF funding has attracted plenty of attention in the last fortnight. Is the rubber hitting the road, or is it, simply, more hot air?

Though Util data show SAF is associated with “reduced contrail ice numbers… less energy deposition… and less warming,” the effect has been recorded as material only for flights using a lot of it. Unfortunately, there’s only “sufficient resource base to support approximately 3.4 million tonnes of advanced SAF production annually, or 5.5% of projected EU jet fuel demand in 2030.” According to new research published by the Royal Society, the UK would have to commit half its farmland or more than double its renewable electricity supply to support net-zero aviation.

Unfortunately, there’s not — not, at least, yet — any single, credible alternative to jet fuel that could support current demand. That shouldn’t undercut investment in SAF research and development. It does, however, strain any argument presenting publicly listed airlines as ‘green’.

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